May 17, The important role that Canadian hydropower plays in the U.S.

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1 Statement of the Province of Manitoba, the Québec Government Office in Washington, Manitoba Hydro, and the Canadian Hydro Association, Submitted to the U.S. Senate Committee on Energy and Natural Resources on S. 2146, The Clean Energy Standard Act of 2012 May 17, 2012 We are pleased to have the opportunity to submit this statement for the record in connection with this hearing on S We applaud the Committee s efforts to promote a clean energy future. However, we have a significant concern about the legislation as drafted because it does not recognize Canadian hydropower consumed in the U.S. as an eligible clean energy source. For the reasons stated below, we respectfully urge the Committee to reconsider this aspect of the legislation. This statement addresses (1) the important role that Canadian hydropower plays in the U.S.; (2) how Canadian hydropower supports the development of U.S. renewables; (3) the recognition by several U.S. states of Canadian hydropower as a renewable resource; (4) Canada s strong commitment to clean electricity; (5) the close alignment of the U.S. and Canada s electricity futures; (6) the substantial untapped hydropower potential in Canada that can help the U.S. meet its clean energy objectives. The important role that Canadian hydropower plays in the U.S. On an annual basis, Canada exports approximately 50 TWh of electricity to the U.S. The vast majority of that power (~80%) is from hydropower. These exports to the U.S. represent 10% of the hydro currently consumed in the U.S., equivalent to powering 3.5 million U.S. homes. Over the past 20 years, the electricity imports from just one province (Manitoba) have resulted in the avoidance of over 170 million metric tons of greenhouse gas emissions. In 2011 alone, provincial power utility Hydro-Québec s net electricity exports helped avoid 12 million metric tons of CO 2 emissions, the equivalent of yearly emissions of 3 million vehicles. In some Border States, Canadian imports provide an important portion of the electricity necessary to meet the state s needs. For example, Manitoba typically provides the Upper Midwest with about 10,000 GWh of electricity per year. This is enough to power nearly 1 million homes, and accounts for over 30% of the region s supply of renewable generation. Manitoba Hydro currently delivers electricity into Minnesota that is approximately equivalent to 11% of the state s total electricity demand. In Vermont, the portion is even higher, with onethird of the electricity consumed in the state delivered from Québec. New York receives about 7% of its electricity from Canada. 1

2 The chart below shows the degree to which some of the Border States, and the U.S. as a whole, rely upon Canadian power sources: Consumption of Canadian electricity is not just limited to Border States. By virtue of its ties through the Western Interconnection grid, Canada provided over 2,250 GWh of electricity to California in 2010 enough electricity to power about 320,000 California homes (estimate based on 2010 Energy Information Administration data). As transmission infrastructure continues to develop and Canada increases its hydropower infrastructure, the potential for this sort of longerrange relationship increases. Canadian hydropower helps support U.S. renewable development In many Border States that rely on Canadian hydropower, the availability of this low-cost, clean electricity helps to support the development of the states own intermittent renewable energy sources (e.g., wind, solar). Canadian hydropower provides a clean, reliable and affordable source of electricity that is available to meet states needs and to support the variability of intermittent resources. An increasing number of U.S. utility partners and states that border Canada are recognizing Canadian hydropower as part of their Renewable Energy Portfolio standards and climate risk strategies. The recently completed sale between Minnesota Power and Manitoba Hydro is a good example of this. The agreement also includes a U.S. wind storage provision that highlights the synergies between those resources. 1 In the Northeast, the long-term ( ) 1 Minnesota Power Press Release. May 24, 2011: Hydropower purchase agreement will trim carbon emissions, bolster transmission system and allow Minnesota Power to store wind energy: 2

3 contract between H.Q. Energy Services (U.S.), a subsidiary of Hydro-Québec, and Vermont s distribution utilities is a key component of Vermont s strategy to remain the lowest per-capita emitter of greenhouse gases (GHGs) among U.S. states. Including Canadian hydro in Clean Energy Standard (CES) legislation would respect historic partnerships between the U.S. and Canada and would enable these types of sustainable development partnerships to grow. As Jon Brekke, Vice President of Minnesota s Great River Energy, stated in 2009 in an interview with Manitoba Hydro: We have over 300 megawatts of wind now in operation and as our consumers demands increase during the typical day there s no guarantee that the wind power s going to be there to match that. We also have a problem where sometimes we get too much energy from wind and the demand of our members is not there to absorb all that wind energy. Manitoba Hydro can take advantage of that low cost power and store up water resources during those hours. Then, when loads increase, hydroelectric power can be released to help provide power to the consumers in the region. Moreover, recognition of Canadian hydropower as a qualifying clean energy resource in a U.S. national CES would not displace or adversely affect the development of other clean energy sources in the U.S., such as wind or solar power. The Energy Information Administration shows that low- or no-carbon sources generated 31% of U.S. total electricity in 2009 (20% nuclear, 7% hydroelectric, and 4% other renewables). 2 S would require 84% of electricity sold to come from low- or no-carbon energy sources by Given the size of that gap, there is an enormous U.S. opportunity for the development of clean energy technologies. In fact, considering the magnitude of the challenge, very high levels of development would be required from many clean energy technologies including Canadian hydropower. At present, Canadian imports account for less than 1% of overall U.S. electricity consumption a minimal amount, in the context of overall U.S. electricity generation and consumption. Even if this figure were augmented by the development of additional Canadian hydropower capacity, Canadian hydro exports to the U.S. will still account for a very small overall percentage of U.S. consumption. Furthermore, any significant Canadian hydro development could only take place gradually and over a long period of time due to multiple constraints on construction resources, labor, engineering and capital. In general, it takes 8-14 years for consultation, planning, permitting, and construction of a hydro generating station compared to 3-5 years for a thermal generating 2 U.S. Energy Information Administration. Analysis of Impacts of a Clean Energy Standard as requested by Chairman Bingaman, November 2011: 3

4 station. Thus, for the foreseeable future, there will be ample room for as much development of U.S. renewable resources as the market will accommodate. However, if the CES legislation excludes Canadian hydropower, it could actually send a perverse signal to current American buyers to increase use and reliance on more carbon-intensive or otherwise riskier sources of energy, potentially stunting emerging plans for further growth of new hydropower into U.S. markets and moving the U.S. further away from the goal of reducing GHGs. As Minnesota Power notes in its testimony before this Committee, if S does not qualify Canadian hydro as a clean energy source, Minnesota Power would be compelled to develop thermal power alternatives to supply the baseload necessary to support its wind power development. This would result in an additional annual 560,000 metric tons of greenhouse gas emissions in Minnesota. States are recognizing Canadian hydropower as a renewable resource In recent years, there has been a trend toward recognizing Canadian hydroelectricity imports as qualifying under state Renewable Portfolio Standards (RPS). Here are examples of developments that have taken place over the past two years at the state level: In 2010, the Vermont legislature amended its renewable requirements, granting full recognition of all hydroelectricity as renewable, including that imported from Québec, Canada. In July 2011, Wisconsin adopted energy legislation that grants renewable credit to imports from new hydropower facilities under development in Manitoba, Canada. In March 2011, Minnesota s Public Utilities Commission ruled that Minnesota Power could apply a portion of hydroelectricity purchased from Manitoba Hydro to meet state RES requirements. In April 2011, California adopted legislation that requires the California Energy Commission to conduct a study (due June 30, 2012) to determine whether British Columbia s run-of-river hydroelectric generating facilities should be included as eligible resources for its Renewable Energy Resources Program. S evidences an intention not to impede state Renewable Portfolio Standards laws. However, by excluding Canadian hydropower, the legislation creates an inconsistency with many state RPS standards. If this is not addressed, it could nullify and effectively preempt the affected state standards. 4

5 In addition, utilities located in U.S. Border States would face a conflicting patchwork of state and federal regulatory requirements if federal and state clean energy requirements and incentives are not properly aligned. The National Association of Utility Regulators (NARUC) has recognized this. In 2010, the Association adopted a resolution recognizing all North American hydropower as a renewable energy resource that warrants consideration in regional and national clean energy mandates. Canada has strongly committed itself to a clean electricity mix Canada s generation mix is already quite clean-- about 60% of the electricity produced in Canada each year is renewable and 15% is nuclear giving Canada already one of the cleanest generation mixes in the world. Canada is undertaking steps to make its generation mix even cleaner. Policies to further this effort are being adopted at both the federal and provincial levels in Canada. The Government of Canada is working towards phasing out conventional coal-fired generation through regulations expected to be finalized in The regulation would essentially prohibit the construction of new coal-based plants after 2015 unless they include carbon capture and storage (CCS) equipment. These regulations would also require companies to close plants after 45 years of operation unless they are retrofitted with CCS. Approximately two-thirds of Canada s coal-fired plants will reach the end of their forty-fifth anniversary by 2025, and more than 80% will do so by The pie charts below illustrate the extent to which Canadian electricity is produced from clean sources relative to the rest of the world. 5

6 In addition to federal regulations, many Canadian provinces have regulations in place to reduce GHG emissions. Some examples include: British Columbia implemented a carbon tax in 2008 that will increase to CAD$30 per metric ton CO 2 -equivalent in July 2012 and covers about 75% of the province s GHG inventory. In addition, British Columbia has a legislated target to generate at least 93% of the electricity in British Columbia from clean or renewable resources. As well, B.C. energy policy states that existing thermal generation must have net zero greenhouse gas emissions by 2016, as must any new facilities. Manitoba has implemented an emissions tax on coal, and the last remaining coal-fired facility is regulated to operate only in support of emergency situations. Ontario is in the process of phasing out all of its coal-fired capacity (over 6000 MW) by In 2012, Québec started an emissions trading program in conjunction with the Western Climate Initiative that will initially cover, as of January 1, 2013, approximately 75 emitters with annual emissions of 25,000 metric tons CO 2 equivalent or above. Currently, 97% of Québec s electricity production comes from hydropower. Québec is committed to meeting its medium-term GHG emissions reduction target (20% below 1990 levels by 2020). In Canada, hydropower facilities are subject to stringent requirements of both the Canadian federal government and provincial governments. Every hydropower project is subject to a detailed assessment of the impacts of the project on the environment and extensive public consultations, including consultations of the aboriginal communities. Canada s constitution (s.35) imposes additional requirements regarding the consultation of any aboriginal community that may be impacted before the government s decision. Under federal law, all hydropower projects must also meet the requirements of the Fisheries Act, those of the Species at Risk Act (SARA), those of the Migratory Birds Convention Act and those of the Navigable Waters Protection Act. The Fisheries Act ensures that fish populations and migrations are maintained and that losses of fish habitat are mitigated or compensated. Under provincial law, using the Province of Manitoba as an example, approvals contain detailed restrictions on the design and construction of the facility. They also require mitigation of habitat implications and strict oversight of downstream sediment. Extensive collaboration with native 6

7 First Nations helps to ensure that the effects of projects on local populations are minimized. As a result, hydropower facilities now under development in Manitoba will rank among the world s most environmentally protective. For example: The 200-megawatt Wuskwatim Generating Station under construction in northern Manitoba has been designed as a low head, run-of-river plant. The facility will generate less than 0.2 sq. miles of flooding, minimizing land-use change implications due to flooding and other environmental impacts. Wuskwatim is being developed by an equity partnership between Nisichawayasihk Cree Nation and Manitoba Hydro, and represents the first equity partnership with a First Nations community on a major generating station project. The 1485-megawatt Conawapa Generating Station in Manitoba has been designed to take advantage of the naturally steep river banks of the Nelson River, which are over 160 feet high, in order to limit flooding to approximately 1.9 sq. miles, almost all within the river s banks, again minimizing potential negative environmental impacts. The provincial government and Manitoba Hydro have entered into a Memorandum of Understanding with Fox Lake Cree Nation related to the Conawapa project. A levelized lifecycle GHG comparison for generating one GWh of electricity at the Wuskwatim hydropower facility was produced to compare various conventional and renewable power generation options. The results show that relative life cycle GHG emissions of the Wuskwatim project are very small and insignificant relative to those of conventional thermal generating stations and comparable to that of wind. Life cycle assessments underway for Conawapa (1485- megawatt) and Keeyask (695-megawatt) generating stations are expected to show similar results. In the Northeast, the Province of Québec applies ISO standards to the development of its hydropower projects, with special attention to mitigation and adaptation efforts and community outreach. In fact, since the 2002 Peace of the Brave Agreement with the Cree nation, the negotiation of agreements with aboriginal communities has been a key component of Québec s approach to hydropower development. Long-term environmental follow-up on projects is performed to measure the real impact of projects and the effectiveness of the mitigation and compensation measures. Recent projects provide examples on the benefits of ensuring adequate long-term monitoring of impacts: On Québec s North Shore, construction of the Romaine river complex, an interconnected network of 4 power stations that will generate 1,550 MW, began in 2009, following completion of an extensive environmental impact assessment that lasted 4 years. In 2011, 50% of the person-years that were created on the 7

8 Romaine project (1,198) benefitted Cote Nord and Innu workers. Environmental follow-up on the Romaine river complex project will continue until 2040, allowing Hydro-Québec to monitor environmental changes, determine the effectiveness of mitigation and compensation measures, and make any necessary adjustments. ISO certified environmental management systems and OHSAS certified health and safety managements systems govern jobsite activities. The Péribonka River project, in Québec s Saguenay-Lac-St-Jean region, came online in 2008 and is the focus of sustained environmental conservation efforts by Hydro-Québec, so as to preserve the river s rich fauna. Since 2007, the project s reservoir has been stocked with 315,000 juvenile lake trout. Waterfowl breeding has increased and the reservoir is frequented by twice as many waterfowl broods as in U.S. and Canada s electricity futures are closely intertwined and aligned Canada plays a very important role in the overall energy security of the U.S. The two countries are each others largest trading partners. Canada now supplies 9% of overall U.S. energy needs, including 87% of its natural gas imports, 21% of its crude oil imports, and one-third of the uranium used in U.S. nuclear power plants. Canada plays a key role in helping the U.S. reduce its dependence upon energy from unstable and unreliable overseas sources. Moreover, the electrical grids of the U.S. and Canada are highly interconnected. Indeed, they are more accurately thought of as a single North American electrical grid, composed of over 200,000 miles of high-voltage transmission lines. In 2009, the total amount of electricity that flowed across the U.S.-Canada border through this system of power lines from Canada to the U.S. and vice-versa exceeded 70,000 GWh. The map below shows the extent of U.S.-Canadian electrical integration (only the high voltage interconnections are shown). 8

9 As the map shows, increased cross-border electricity flow will require construction of new transmission infrastructure, which drives jobs in design, engineering, construction and production of materials on both sides of the Canada-U.S. border. A recent study by Brattle Consultants estimated that, for every $1 billion invested in U.S. transmission infrastructure, $2.4 billion in economic output and 13,000 equivalent years of employment are generated. Demand for Canadian hydropower helps to promote further development of Canadian hydropower infrastructure, and this provides benefits to U.S. manufacturers that supply goods and services to help build out the Canadian infrastructure. It should also be noted that, because our economies are so entwined, for every dollar spent in Canada on energy, the U.S. receives 91 cents back in the form of revenue from exports to Canada. In all cases, furthering reliance on North American energy resources helps minimize leakage of investment out of the economy and protects U.S. jobs. In February 2009, shortly after taking office, President Obama met with Canadian Prime Minister Harper and established the U.S.-Canada Clean Energy Dialogue (CED), which committed both nations to move toward a cleaner, more secure energy future. When the two leaders met again in February 2011, they issued a joint statement incorporating the Beyond the 9

10 Border policy. The statement stressed the close interconnection between the two countries on national security and energy policy. To further the shared energy goals of the U.S. and Canada, the CED has committed to increasing opportunities for trade in clean electricity. This commitment was motivated by an acknowledgment that [t]he North American electricity market is integrated across national borders. Canadian hydropower, which accounts for over 60% of Canadian electrical generation, is a clean and stable resource that can play a central role in realizing the shared clean energy goals. It can help displace electrical generation from fossil fuels in the U.S., thereby helping the U.S. reduce emissions. Canada has substantial untapped hydropower potential that can help the U.S. meet its clean energy objectives Canada still has a large untapped hydropower potential. Hydropower projects are capitalintensive to build and relatively low-cost to operate. A recent report by the Canadian Hydropower Association cited costs per MW installed from $2.9 million/mw to CAD $4.44 million/mw depending on the region in which the generation is built. 3 In addition to the capital costs, building cross-border transmission capacity presents additional challenges. In general it takes 8-14 years for consultation, planning, permitting, and construction of a hydro generating station compared to 3-5 years for a thermal generating station. Given the high capital costs and long lead times associated with new hydropower development in Canada, if the U.S. adopts a CES that does not recognize Canadian hydropower as a qualified clean energy resource, the U.S. will be disincentivising U.S. utilities from purchasing Canadian hydropower to the detriment of U.S. ratepayers that have been benefiting from this clean and costs effective energy resource. Current plans to purchase (and therefore to develop) hydropower in Canada depend to an extent on the ability of hydropower to help the buyer manage GHG and other environmental price risks. If passed, S would effectively be the major GHG management policy in the United States (alongside EPA regulatory actions under the Clean Air Act). Unfortunately, under the current bill, Canadian hydro would be treated the same as high-emitting GHG intensive coal and less favorably than medium-emitting natural gas. This means U.S. purchasers will see little of the risk management value they have been counting on from this clean renewable resource. 3 Job Creation and Economic Development Opportunities in the Canadian Hydropower Market; HEC Montreal report for the Canadian Hydropower Association,

11 The total technical potential of 163 GW in Canada as illustrated in the map below is more than double the capacity currently in service. 4 About 25 GW of that capacity is currently accounted for in various stages of project planning across Canada. (Construction is underway or expected to begin within the next ten years on 13 GW. The additional 12 GW could be developed if the appropriate circumstances arise.) Conclusion We are committed to working with the U.S. on the shared goal of moving towards a cleaner, more secure electricity future. While we strongly support the Committee s objectives in this legislation, we believe that the treatment of Canadian hydropower in S.2146 would frustrate these objectives. We respectfully urge the Committee to revise the bill to enhance the ability of U.S. utilities to utilize Canadian hydropower to meet clean energy goals in a cost effective manner. We thank you for the opportunity to submit this testimony and look forward to working with you to achieve these important goals. 4 Study of the Hydropower Potential in Canada: Final Report. Canadian Hydropower Association,